Game, Set, Match: Agreement on the Renewable Energy Directive (REDII)

The inter-institutional tennis game on which we reported a few months ago is almost over. In Mid-June, the Member States (i.e. Council) and the European Parliament (EP) reached a deal on the Renewable Energy Directive.

The revised text of EU’s Renewable Energy Directive (REDII) is a result of hard-fought compromises. The parties agreed on a binding, EU-wide renewable energy target of 32 percent by 2030, with an upward review close by 2023. This agreed-upon target sits between the European Commission’s (EC) and Council’s proposed 27 percent target and the EP’s proposal for covering 35 percent of the EU’s final energy consumption with renewable energy sources by 2030. A couple of countries, including Austria, France, Italy, Spain and the Netherlands, supported a more ambitious renewable energy target, not backed by Germany, while the Visegrad Group of countries comprising Czech Republic, Hungary, Poland and Slovakia opposed to raise the EU’s level of ambition.

Below, we review three important points in the REDII which may impact corporates pursuing renewable energy targets:

1. Member States can continue to decide if they issue GOs for supported renewable energy production or not

Should a Member State issue guarantees of origin (GOs) for supported renewable energy production, the market value of the GOs must be considered in the relevant support scheme. The REDII mentions two possible options (but can be more) for how to take the market value of the GOs into account in this case: issue and cancel GOs immediately or auction them on the market. No mandatory auction will be introduced for GOs for supported power production from renewable energy sources.

This also means that there is no threat for supported renewable energy plant operators who sell their production via corporate power purchase agreements (PPA) to lose the GOs (which is key for corporates as the clean energy attribute certificate is crucial for them to make renewables claims).

The REDII also mentions the following three cases (incl. corporate PPAs) in which it is presumed that the GOs’ market value is included in case of supported renewable energy production:

The financial support is granted by way of a tendering or a tradable green certificate system;

The market value of the GO is administratively taken into account in the level of financial support;

The GOs are not issued directly to the producer but to a supplier or consumer who buys the renewable energy either in a competitive setting or in a long-term corporate PPA.

Based on the points mentioned above, we don’t expect changes in the current country-level GOs issuance policies. For example, Germany and France will probably maintain their policies to not issue GOs for supported renewable energy production.

With respect to GOs, the revised REDII doesn’t differentiate electricity from other energy sources. This means that in this regard the same rules apply for electricity, gas, heating and cooling.

2. More supportive policy framework for corporate power purchase agreements

Member States shall assess the regulatory and administrative barriers to long-term PPAs, and remove unjustified barriers and facilitate the uptake of such agreements. Member States shall ensure that those agreements are not subject to disproportionate or discriminatory procedures and charges.

Moreover, policies and measures facilitating the uptake of PPAs shall be described in the integrated national energy and climate plans and their subsequent progress reports pursuant to the Governance of the Energy Union Regulation, which was also agreed by the Council and the EP.

The European corporate PPA markets expand at such a fast pace that there is a necessity for mentioning this area explicitly in the EU-level legislation. We expect these regulatory changes to give further impetus for corporate PPAs in Europe.

3. Simplified permit granting procedures

Permit granting procedures will be simplified and streamlined with a maximum of two years for regular projects and one year for repowering, both extendable for an additional year in case of specific circumstances and notwithstanding environmental and judicial procedures. Simple notification procedures may apply for small-scale projects up to 50 kW.

This rule may support corporates planning construction of renewable energy facilities for onsite generation purposes. For example, the current permitting process for onshore wind turbines may take much longer.

The revised REDII contains a couple of other interesting changes, such as the ban on retroactive changes in support schemes and the exemption from charges and fees for small-scale self-consumption (up to 30 kW) allowing Member States to apply charges only if self-consumption grows excessively.

The REDII will be submitted for approval to the European Parliament, where the plenary vote is expected in October, and then back to the Council for final adoption. The directive will enter into force 20 days following its publication in the Official Journal of the EU.

In general, the revised REDII is supportive to further expansion of renewable energy in the EU, and will help the corporates in pursuing their renewable energy goals.